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Court gives guidance on whether notice to end supply agreement was ‘reasonable’

Businesses will welcome High Court guidance on when notice to end an agreement is ‘reasonable’, where the agreement makes no express provision for termination on notice.

An agreement for the supply of clothing did not expressly say it could be terminated by giving a specific period of notice. In those circumstances the law says an agreement can be terminated on ‘reasonable’ notice, whether the agreement is oral or in writing. The customer under the contract purported to terminate the supply agreement on nine months’ notice, but the supplier claimed that was too short to be reasonable.

The court said what is ‘reasonable’ depends on the circumstances, and gave useful guidance on the factors to take into account. These included:

  • usual practices in the relevant market;
  • how formal the agreement is: the more formal, the longer the notice period must be before it is ‘reasonable’;
  • the parties’ knowledge of when the relationship was likely to end, and the timing of negotiations leading up to termination (for example, if the relationship was likely to end shortly, a short notice period is more likely to be reasonable).

The court also ruled that the relevant time for assessing whether a notice period is reasonable is when the notice is given. In this case, the court ruled nine months was a reasonable notice period.

Recommendation

Parties to an agreement, whether written or oral, should ensure specific provision is made for termination of the agreement on notice, or risk the uncertainty inherent in applying the ‘reasonable’ test.

Case ref: Hamsard 3147 Ltd (t/a Mini Mode Childrenswear) & Anor v Boots UK Ltd [2013] EWHC 3251

 Jonathan Waters is the founder of Helix Law. Before qualifying as a Solicitor he worked in industry and in investment banking for over a decade. He was also the Partner in charge of Commercial Litigation, Employment Law and Property Litigation at Stephen Rimmer LLP. Jonathan has wide experience of helping and advising businesses to avoid or to deal with commercial disputes and in particular construction disputes.

This article is written to raise awareness of the issues it discusses and it may not be updated after it is first written, even if the law changes. It is not intended to be legal advice and cannot be relied on as such. Helix Law is not responsible or liable for any action taken or not taken as a result of  this article. If you think the matters set out affect you and you wish to apply them to your particular circumstances then we are happy to give you free initial telephone advice. 

Contact Helix Law on 01273 761 990 or email: [email protected]helix-law.com